Rumors of a takeover have circled Walter Energy for more than a year, with BHP frequently named as a possible suitor. A spokeswoman at BHP's Melbourne headquarters said the report was "market speculation" and declined to comment further.

The Daily Mail reported on its website Wednesday that Walter Energy's stock has collapsed 58% this year from the US$100-plus level as the price of hard coking coal has fallen, and U.S. analysts now believe it is undervalued.

BHP has recently shifted its focus to cost-cutting across its operations as prices for key industrial commodities have slumped from last year's highs amid falling demand from China.

The company has postponed or shelved billions of dollars in expansion projects, shed jobs and closed loss-making mines, including two metallurgical coal mines in eastern Australia.

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